Stocks Stumble as Nasdaq Extends Gains | Daily Market Analysis

Key events:

• USA - S&P Global US Manufacturing PMI (Dec)
• USA - S&P Global Services PMI (Dec)

US stocks wrapped up the trading week in a quiet session on Friday, with the S&P 500 and Dow finishing slightly lower, while the Nasdaq extended its winning streak to a fourth consecutive week.

The Dow Jones Industrial Average dropped 86.06 points (0.20%) to close at 43,828.06, the S&P 500 edged down by 0.16 points to 6,051.09, and the Nasdaq Composite climbed 23.88 points (0.12%) to settle at 19,926.72.

The Japanese Yen slid to a three-week low against the US Dollar during Monday's Asian session. This decline stemmed from growing expectations that the Bank of Japan will hold off on raising interest rates this week. Adding to the pressure on the yen were surging US Treasury yields, fueled by predictions of a less dovish stance from the Federal Reserve. Not even the stronger-than-expected Core Machinery Orders and flash Manufacturing PMI data from Japan could offer the yen much relief, indicating bearish sentiment remains dominant.

Despite this, traders may exercise caution ahead of key central bank decisions later this week. The BoJ’s monetary policy announcement on Thursday and the Federal Open Market Committee decision on Wednesday will likely set the tone for the USD/JPY pair. Meanwhile, geopolitical risks tied to the ongoing Russia-Ukraine war and Middle East tensions, coupled with uncertainty surrounding President-elect Donald Trump's tariff policies, could provide temporary support for the safe-haven yen. Traders are also eyeing flash US PMI reports for potential short-term trading opportunities.

The Australian Dollar reversed its four-day losing streak on Monday as the US Dollar softened in response to subdued Treasury yields ahead of the Fed's policy meeting. Markets widely anticipate a 25-basis-point rate cut in the Fed's final meeting of the year. The CME FedWatch tool indicates that this outcome is nearly fully priced in, heightening interest in the Fed's forward guidance.

Adding to the AUD’s challenges, China's economic performance showed mixed results. Retail Sales (YoY) grew by 3.0% in November, falling short of the 4.6% forecast, while Industrial Production surpassed expectations with a 5.4% increase. Chinese officials, led by President Xi Jinping, have vowed to shift fiscal policy toward consumption in an effort to boost economic growth. However, limited details on this support have weighed on the AUD, given China's crucial role as Australia's largest trading partner.

The Reserve Bank of Australia's dovish outlook has further pressured the Australian Dollar, as traders anticipate deeper and more frequent rate cuts than previously expected. Preliminary December PMIs from Australia also painted a less optimistic picture, with the Manufacturing PMI dropping to 48.2, the Services PMI sliding to 50.4, and the Composite PMI dipping below the neutral 50 mark at 49.9.

In response to escalating trade tensions, Beijing has already taken retaliatory steps against the US, including investigating Nvidia, threatening to blacklist a US apparel firm, restricting exports of critical minerals, and tightening the drone supply chain. These measures underscore rising trade risks, which could further impact the AUD.

Gold prices struggled to recover from a one-week low near the $2,644 mark during Monday’s Asian session. The precious metal faced headwinds as investors increasingly bet on a cautious Federal Reserve stance, with signs that inflation's progress toward the 2% target has stalled. Elevated US Treasury yields have also dampened demand for non-yielding assets like gold, adding to its struggles.

Meanwhile, geopolitical tensions continue to escalate. Israel has announced plans to double its population in the occupied Golan Heights, a move that risks further inflaming regional tensions. In Gaza, Israeli airstrikes reportedly killed 53 Palestinians, while the military claimed to have killed or captured dozens of militants in northern Gaza. Additionally, NATO Secretary General Mark Rutte warned that Russian President Vladimir Putin could extend his ambitions beyond Ukraine, posing a broader threat to Europe. Reports from the Syrian Observatory for Human Rights indicated that Israeli airstrikes targeted missile launchers and radar installations in southern and eastern Syria.

The EUR/USD pair started the week on a positive note, climbing to around 1.0520 during the Asian session on Monday. The pair’s strength stemmed from a weaker US Dollar, subdued by declining Treasury yields ahead of the Fed’s interest rate decision. Market expectations are aligned with a 25-basis-point rate cut, while Fed Chair Jerome Powell is likely to signal a cautious approach moving forward. Analysts predict that the Fed may pause after this cut, citing robust US economic performance and inflation hovering above the 2% target.

The Euro also found support from political developments in France. President Emmanuel Macron appointed centrist ally François Bayrou as Prime Minister, signaling a push for stability after recent political turbulence. Meanwhile, European Central Bank Governing Council member Robert Holzmann stressed the importance of maintaining price stability, warning that rate cuts solely to stimulate the economy would contradict the ECB’s mandate.

As markets gear up for this week’s critical central bank meetings, traders are bracing for heightened volatility in global currencies and commodities.